Investors Seek Stability Amid Policy Uncertainty, FED Holds Steady, MUNI Bonds in Focus

• James Pruskowski, CIO at 16rock Asset Management, said fears of stagflation resulting from President Trump’s tariff policies and the layoffs of thousands of federal employees are spooking investors. Too much is hitting the investor at once, particularly growth risk tied to policy shifts and their impact on equities. This uncertainty causes the markets to freeze, which is creating volatility in all markets.
• Bond investors continue to add funds to MUNI bond funds. Investors added 419MM over the last week, while the previous week saw a 1.34B inflow. Based on this data, the bond investor seeks stability and liquidity provided by the High-Grade markets. Many investors continue to seek stability and liquidity while moving away from the equity markets.
• US consumer prices rose at the slowest pace in four months in February. This is welcome news for American households who remain apprehensive about the potential for tariffs to drive higher costs.  The FED watches this number close, should we continue to see these numbers come down, you could see a dovish shift (slightly) from their current stance.
• US inflation came in lower than forecasted, which could offer some relief to the equity and fixed-income markets. US consumer pricing rose by 20% in February, the slowest pace in four months. In perspective, January’s number was +.5%, according to the Bureau of Labor Statistics data out on 3/12.
• As we have reported, the FED will continue to patiently “sit and wait” until there is more clarity on the administration’s actions and the inflation trajectory. The thought is that the FED will keep rates steady at next week’s meeting.
• We have reported in the past on the NYC toll to drive along Manhattan’s busiest streets.  If you buy NYC paper, the regional economy may gain as much as 1.3B annually as a new toll to drive on specific streets.  The first-of-its-kind congestion pricing is set to charge most motorists $9 during peak periods to drive south of 60th Street in Manhattan.  The aim is to ease congestion in one of the most traffic-clogged urban areas in the world and raise 15B over time to modernize the city’s aging transit system.
• Loop Capital founder Jim Reynolds expects municipalities to sell as much as 600B this year.  The market has already seen the most significant start to a year in at least a decade; we suspect we will also continue to see new issuance stay strong through the next few months.  Municipalities and their FAs expect yields to move lower, particularly with the volatility you are seeing in the equity markets. Should this happen, you will see new issuance continue to stay strong.  With this said, we are seeing new issues being priced cheap which is another reason we are seeing higher yields over the last few weeks.
• Traders in the futures and options markets are loading up on bets that the FED will have to lower rates this year by more than expected because of Trump’s administration’s policies. The tough talk on tariffs out of Washington has pushed investors toward haven assets such as T bills and MUNIs, which are poised to become attractive if the recent signs of economic trouble continue to build.
• T Secretary Scott Bessent warned that the US economy may see some disruption as the Trump administration shifts the basis for growth away from the government and toward the private sector. Bessent made news on Friday on CNBC, indicating he could see the economy start to “roll” as there will be a natural adjustment as we move away from public spending. 

At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.

David Loesch
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